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Thursday, January 19, 2012

Health Care Costs are Eating Your Pay Raise

Rand Research Highlights, based on the work of David I. Auerbach and Arthur L. Kellerman, asks: "How Does Growth in Health Care Costs Affect the American Family?"
"In the ten-year period between 1999 and 2009, U.S. health care spending nearly doubled, climbing from $1.3 trillion to $2.5 trillion. In 2009, while the rest of the U.S. economy plunged into recession and millions lost their jobs, health care costs grew by 4 percent. As a result, the percentage of our nation’s gross domestic product (GDP) devoted to health care reached 17.6 percent, up from 13.8 percent only ten years earlier.
Although these numbers are striking, they do not easily translate into figures that are meaningful to individual Americans.

"To paint an accurate picture of how health care cost growth is affecting the finances of a typical American family, RAND Health researchers combined data from multiple sources to depict the effects of rising health care costs on a median income married couple with two children covered by employer-sponsored insurance. The analysis compared the family’s health care cost burden in 1999 with that incurred in 2009. The take-away message: Although family income grew throughout the decade, the financial benefits that the
family might have realized were largely consumed by health care cost growth, leaving them with only $95 more per month than in 1999. Had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month—more than $5,000 per year—to spend on other priorities."

Here are the calculations for that median family. The row showing "Taxes devoted to health care" is the cost of Medicare, Medicaid, and other public health programs.

In short, when you see comments about how pay hasn't gone up much in recent years, one big reason is that health care costs are swallowing the gains. Moreover, friends of mine in public policy circles sometimes point out, with a powerless shrug, that if the rate of increase in health care costs doesn't drop substantially, there isn't going to be room for any other government priorities--and that's true whether your priorities are lower taxes or preserving or even increasing spending on other programs.